It's the level where you play in the city. I run into a glitch where I cannot cast any spells. This affects everyone, wizards and monsters and archers who can't fire any arrows.

The glitch is described here
http://www.gog.com/forum/magic_carpet_series/spell_casting_glitch/page1
http://www.gog.com/forum/magic_carpet_series/cant_cast_spell_past_third_or_fourth_level/page1
http://www.dosbox.com/comp_list.php?showID=712&letter=M

The consensus being that it happens when there are too many creatures. Usually civilians/archers who grow out of control

I had the glitch on level 13 before. The solution was to replay and make sure you control the population growth. However on level 35 it's impossible. The whole map is one large town and there is a wyvern that's destroying houses and mass producing archers. You don't have any weapons of mass destruction either; the best you can do is lightning. The glitch appears around the time you reach level 3 castle, depending how fast you go.

I tried:
_Increasing memsize=64, and all the way up to 1024
_Increasing cycles (to auto, which I believe puts it at max; tried 70000 too)
_Changing cpu type to pentium_slow
_Changing graphics mode to opengl
_Using Doxbox 0.70
_Using Dos32A instead of DOS4GW

None worked

However, I don't believe all the people who played this did not finish the game because of this level. There must be a way to fix this. Especially since there is a video on youtube, where there are tons of archers (more than I have before bug appears), yet the player is going about normally.
http://www.youtube.com/watch?v=d0kUdQ9GDi8&feature=player_detailpage#t=220

Is gog using an old version? Is this a dosbox emulation problem?

For all those who played the game, could you please let me know how you finished this level?

I really don't want to give up this game, since I'm finally beginning to enjoy it. And I'm definitely not using cheat codes to pass this.

SOLVED IT! :)

I'm posting what I did exactly, the youtube video actually gave me the idea:

_Playing in low res mode (i.e. NOT pressing R key), then lowering cycles till the game was at a playable speed.
_(Possibly Optional)Make sure you play it on your first try, if you die, don't restart the game or reload the level. Quit the whole game, and start it again

Not sure about point 2. But I thought maybe there is a memory leak and when you die, memory is not freed properly which is causing/contributing to the bug.

Further notes:
I'm not sure whether it's lowering cycles, playing in low res mode that did it. If I lower cycles and play in high res mode, the bug still appears.
Switching to low res mode after the bug appeared didn't fix it.

Switching to high res mode after many archers have been spawned (without increasing cycles) didn't seem to cause the bug to appear, though I didn't play around much, maybe it would appear later.

If anyone wants to experiment further on what's causing it, I'd be happy to hear about what you find out. If you just want to play out this level, then play in low res, reduce cycles and have fun. It's not that difficult and blasting hordes of archers by an increasing castle can feel really good...

Not sure if it matters, but In my dosbox config I had core, cpu type and cycles all set to auto.

I've found another way that might be used to solve this. Haven't tested it myself, but I think it should work.

This requires Hidden Worlds. I noticed that if you run Hidden Worlds, this bug appears to be solved there, since on level 2 for example, tons of archers appear without any problems. I also noticed you can load the original saves in Hidden Worlds (though not vice versa).

So I suppose what could work is: Load the level in Hidden Worlds. Finish the level. Save. Load the game in original game.

This worked for me as well. I was stuck at level 14.